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Understanding the Trembles of Nature: How Do Disaster Experiences Shape Bank Risk Taking?

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  • Bos, Jaap

    (Finance, RS: GSBE EFME)

  • Li, Runliang

    (Finance, RS: GSBE EFME)

Abstract

This paper examines the impact of natural disaster experiences on banks’ business practices. Using earthquake and banking data for California, we find that banks that have had stronger earthquake experiences change their practices, both as a result of the natural disasters’ effects on local deposit supply and through changes in banks’ risk perceptions. These banks have a smaller exposure to real estate, maintain higher equity levels, and are more likely to lend to high-income borrowers. This paper confirms, therefore, that institutional memory exists in the banking sector and that banks and communities adapt to natural disasters interactively.

Suggested Citation

  • Bos, Jaap & Li, Runliang, 2017. "Understanding the Trembles of Nature: How Do Disaster Experiences Shape Bank Risk Taking?," Research Memorandum 033, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2017033
    DOI: 10.26481/umagsb.2017033
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    References listed on IDEAS

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    Cited by:

    1. Pauline AVRIL & Grégory LEVIEUGE & Camélia TURCU, 2021. "Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?," LEO Working Papers / DR LEO 2913, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. Jesse M. Keenan & Jacob T. Bradt, 2020. "Underwaterwriting: from theory to empiricism in regional mortgage markets in the U.S," Climatic Change, Springer, vol. 162(4), pages 2043-2067, October.

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    More about this item

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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